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Bank of Commerce Holdings Announces Results for the First Quarter of 2017

REDDING, Calif., April 20, 2017 (GLOBE NEWSWIRE) -- Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.1 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2017. Net income for the quarter ended March 31, 2017 was $2.3 million or $0.17 per share – diluted, compared with a net loss of $960 thousand or $0.07 per share – diluted for the same period of 2016.

Financial highlights for the first quarter of 2017 compared to the same quarter a year ago:

  • Net income of $2.3 million for the three months ended March 31, 2017 was an increase of $3.2 million (338%) from $960 thousand net loss recorded during the same period in the prior year. Net loss for the quarter ended March 31, 2016 included expenses totaling $2.8 million related to the acquisition of five Bank of America branches and the execution of our plans to reconfigure our balance sheet using liquidity provided by those branches.
  • Return on average assets improved to 0.80% for the first quarter of 2017 compared to (0.37)% for the same period in the prior year.
  • Return on average equity improved to 9.63% for the first quarter of 2017 compared to (4.23)% for the same period in the prior year.
  • Deposits at March 31, 2017 totaled $1.0 billion, an increase of $66.8 million (7%) since March 31, 2016. This growth was centered in core deposits in our Sacramento marketplace.
  • Gross loans at March 31, 2017 totaled $810.2 million, an increase of $86.0 million (12%) since March 31, 2016. Most of this growth occurred in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.
  • Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.57 at March 31, 2016.

Financial highlights for the first quarter of 2017 compared to the prior quarter:

  • Net income of $2.3 million for the three months ended March 31, 2017 was a decrease of $45 thousand (8% annualized) from $2.3 million net income earned during the prior quarter. Net income for the three months ended March 31, 2017 included life insurance death benefit proceeds of $502 thousand and a $200 thousand provision for loan and lease losses.
  • Return on average assets was 0.80% for the first quarter of 2017 compared to 0.81% for the prior quarter.
  • Return on average equity decreased to 9.63% for the first quarter of 2017 compared to 9.69% for the prior quarter.
  • Deposits at March 31, 2017 totaled $1.0 billion, a decrease of $176 thousand (0.07% annualized) since December 31, 2016.
  • Gross loans at March 31, 2017 totaled $810.2 million, an increase of $6.0 million (3% annualized) since December 31, 2016.
  • Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.83 at December 31, 2016.

Randall S. Eslick, President and CEO commented: “It is hard to believe that a full year has already passed since we acquired five new offices from Bank of America. During that time, the buildings have been remodeled and the new staff and customers have been fully integrated into the Redding Bank of Commerce family. Throughout the bank, deposits and loans have continued to increase handsomely which we anticipate will lead to increasing profitability. We applaud the hard work of our employees and acknowledge their accomplishments.”

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the “safe harbor” created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve our plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

  • Competitive pressure in the banking industry and changes in the regulatory environment
  • Changes in the interest rate environment and volatility of rate sensitive assets and liabilities
  • A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans
  • Credit quality deterioration which could cause an increase in the provision for loan and lease losses
  • Asset/Liability matching risks and liquidity risks
  • Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and under the heading: “Risk Factors” and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation, to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

TABLE 1
SELECTED FINANCIAL INFORMATION - UNAUDITED
(amounts in thousands except per share data)
For The Three Months Ended
Net income (loss), average assets and March 31, December 31,
average shareholders' equity 2017 2016 2016
Net income (loss) $2,252 $(960) $2,297
Average total assets $1,148,305 $1,034,203 $1,126,034
Average total earning assets $1,075,039 $969,818 $1,051,387
Average shareholders' equity $94,820 $91,307 $94,326
Selected performance ratios
Return on average assets 0.80% (0.37)% 0.81%
Return on average equity 9.63% (4.23)% 9.69%
Efficiency ratio 71.49% 108.08 % 73.15%
Share and per share amounts
Weighted average shares - basic 13,416 13,360 13,370
Weighted average shares - diluted 13,521 13,403 13,476
Earnings (loss) per share - basic $0.17 $(0.07) $0.17
Earnings (loss) per share - diluted $0.17 $(0.07) $0.17
At March 31, At December 31,
Share and per share amounts 2017 2016 2016
Common shares outstanding (1) 13,517 13,442 13,440
Tangible book value per common share $6.97 $6.57 $6.83
Capital ratios
Bank of Commerce Holdings
Common equity tier 1 capital ratio (2) 9.71% 9.82 % 9.43%
Tier 1 capital ratio (2) 10.72% 10.93 % 10.42%
Total capital ratio (2) 13.00% 13.30 % 12.68%
Tier 1 leverage ratio (2) 9.09% 9.48 % 9.13%
Tangible common equity ratio 8.27% 8.21 % 8.07%
Redding Bank of Commerce
Common equity tier 1 capital ratio (2) 12.59% 13.07 % 12.31%
Tier 1 capital ratio (2) 12.59% 13.07 % 12.31%
Total capital ratio (2) 13.84% 14.32 % 13.55%
Tier 1 leverage ratio (2) 10.67% 11.36 % 10.80%
(1) Includes unvested restricted shares issued in accordance with the Company's equity incentive plan.
(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of March 31, 2017, the Company had total consolidated assets of $1.1 billion, gross loans of $810.2 million, allowance for loan and lease losses (“ALLL”) of $11.6 million, total deposits of $1.0 billion, and shareholders’ equity of $96.5 million.

TABLE 2
LOAN BALANCES BY TYPE - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2016 Total
Commercial$145,635 19% $136,721 19% $8,914 7 % $153,844 19%
Real estate - construction and land development 46,228 6 27,554 4 18,674 68 % 57,771 7
Real estate - commercial non-owner occupied 305,802 38 247,840 34 57,962 23 % 287,455 36
Real estate - commercial owner occupied 164,166 20 154,484 21 9,682 6 % 151,516 19
Real estate - residential - ITIN 44,211 5 48,384 7 (4,173) (9)% 45,566 6
Real estate - residential - 1-4 family mortgage 19,710 2 16,746 2 2,964 18 % 20,425 3
Real estate - residential - equity lines 33,019 4 38,528 5 (5,509) (14)% 35,953 4
Consumer and other 51,423 6 53,986 7 (2,563) (5)% 51,681 6
Gross loans 810,194 100% 724,243 99% 85,951 12 % 804,211 100%
Deferred fees and costs 1,446 985 461 1,324
Loans, net of deferred fees and costs 811,640 725,228 86,412 805,535
Allowance for loan and lease losses (11,641) (11,495) (146) (11,544)
Net loans$799,999 $713,733 $86,266 $793,991
Average yield on loans during the quarter 4.72% 4.72% - 4.69%

The Company recorded gross loan balances of $810.2 million at March 31, 2017, compared with $724.2 million and $804.2 million at March 31, 2016 and December 31, 2016, respectively, an increase of $86.0 million and $6.0 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

TABLE 3
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2016 Total
Cash and due from banks $18,315 7% $14,969 5% $3,346 22 % $16,419 6%
Interest-bearing deposits in other banks 42,744 16 70,781 24 (28,037) (40)% 51,988 19
Total cash and cash equivalents 61,059 23 85,750 29 (24,691) (29)% 68,407 25
Investment securities:
U.S. government and agencies 12,496 5 15,645 5 (3,149) (20)% 10,354 4
Obligations of state and political subdivisions 55,663 20 61,288 21 (5,625) (9)% 59,428 22
Residential mortgage backed securities and collateralized mortgage obligations 82,392 30 51,721 18 30,671 59 % 69,604 24
Corporate securities 10,448 4 23,764 8 (13,316) (56)% 16,116 6
Commercial mortgage backed securities 16,522 6 14,571 5 1,951 13 % 15,514 6
Other asset backed securities 4,013 1 7,262 2 (3,249) (45)% 4,158 2
Total investment securities - AFS 181,534 66 174,251 59 7,283 4 % 175,174 64
Obligations of state and political subdivisions - HTM 31,257 11 35,357 12 (4,100) (12)% 31,187 11
Total investment securities - AFS and HTM 212,791 77 209,608 71 3,183 2 % 206,361 75
Total cash, cash equivalents and investment securities $273,850 100% $295,358 100% $(21,508) (7)% $274,768 100%
Average yield on interest bearing due from banks and investment securities during the quarter 2.17% 2.35% (0.18) 1.95%

As of March 31, 2017, we maintained noninterest-bearing cash positions of $18.3 million and interest-bearing deposits in the amount of $42.7 million at the Federal Reserve Bank and correspondent banks. During the first quarter of 2017, we continued to deploy liquidity provided by the March 2016 branch acquisition and by strong organic deposit growth into loan originations and available for sale securities.

Available-for-sale investment securities totaled $181.5 million at March 31, 2017, compared with $174.3 million and $175.2 million at March 31, 2016 and December 31, 2016, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the first quarter of 2017 we purchased 18 securities with a par value of $23.7 million and weighted average yield of 2.52% and sold 14 securities with a par value of $13.5 million and weighted average yield of 2.06%. The sales activity on available for sale securities resulted in $66 thousand in net realized gains. During the same period, we received $4.3 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2017 and 2016 were $211.1 million and 3.06% compared to $197.8 million and 3.42%, respectively.

At March 31, 2017, our net unrealized losses on available-for-sale investment securities were $891 thousand compared with net unrealized gains of $1.7 million and net unrealized losses of $1.3 million at March 31, 2016 and December 31, 2016, respectively. The decrease in net unrealized losses between December 31, 2016 and March 31, 2017 is primarily due to significant changes in market interest rates over the past three months.

TABLE 4
DEPOSITS BY TYPE - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
% of % of Change % of
2017 Total 2016 Total Amount % 2016 Total
Demand - noninterest bearing$270,412 27% $212,758 23% $57,654 27 % $270,398 27%
Demand - interest bearing 407,784 41 392,325 42 15,459 4 % 405,569 40
Total demand 678,196 68 605,083 65 73,113 12 % 675,967 67
Savings 112,738 11 105,828 11 6,910 7 % 113,309 11
Total non-maturing deposits 790,934 79 710,911 76 80,023 11 % 789,276 78
Certificates of deposit 213,556 21 226,756 24 (13,200) (6)% 215,390 22
Total deposits$1,004,490 100% $937,667 100% $66,823 7 % $1,004,666 100%
Average rate on interest bearing deposits during the quarter 0.39% 0.48% (0.09) 0.40%
Average rate on all deposits during the quarter 0.29% 0.37% (0.08) 0.29%

Total deposits at March 31, 2017, increased $66.8 million or 7% to $1.0 billion compared to March 31, 2016, and decreased $176 thousand or 0.07% annualized compared to December 31, 2016. Total non-maturing deposits increased $80.0 million or 11% compared to the same date a year ago and increased $1.7 million or 1% annualized compared to December 31, 2016. Certificates of deposit decreased $13.2 million or 6% compared to the same date a year ago and decreased $ 1.8 million or 3% annualized compared to December 31, 2016.

During the first quarter of 2016 the branch acquisition provided new deposits totaling $149.0 million and we called and redeemed $17.5 million of brokered certificates of deposit. At March 31, 2017, the deposits in the acquired branches totaled $153.0 million.

TABLE 5
WHOLESALE AND BROKERED DEPOSITS - UNAUDITED
(amounts in thousands)
At March 31, At December 31,
2017 2016 2016
CDARS / ICS reciprocal brokered deposits$55,565 $61,601 $65,212
Online listing service wholesale time deposits 47,429 55,986 48,900
Total wholesale and brokered deposits$102,994 $117,587 $114,112

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $55.6 million, $61.6 million and $65.2 million at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6
SUMMARY INCOME STATEMENT - UNAUDITED
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31, Change
2017 2016 Amount % 2016 Amount %
Interest income $10,817 $9,904 $913 9 % $10,518 $299 3 %
Interest expense 1,083 1,600 (517) (32)% 1,084 (1) 0 %
Net interest income 9,734 8,304 1,430 17 % 9,434 300 3 %
Provision for loan and lease losses 200 200 100 % 200 100 %
Noninterest income 1,542 949 593 62 % 1,250 292 23 %
Noninterest expense:
Branch acquisition and balance sheet reconfiguration costs 2,795 (2,795) (100)% %
Other noninterest expense 8,061 7,206 855 12 % 7,815 246 3 %
Income (loss) before provision for income taxes 3,015 (748) 3,763 503 % 2,869 146 5 %
Deferred tax asset write-off 363 (363) 100 % %
Provision (benefit) for income taxes 763 (151) 914 605 % 572 191 33 %
Net income (loss) $2,252 $(960) $3,212 335 % $2,297 (45) (2)%
Basic earnings (loss) per share $0.17 $(0.07) $0.24 343 % $0.17 $ %
Average basic shares 13,416 13,360 56 % 13,370 46 %
Diluted earnings (loss) per share $0.17 $(0.07) $0.24 343 % $0.17 $ %
Average diluted shares 13,521 13,403 118 1 % 13,476 45 %
Dividends declared per common share $0.03 $0.03 $ % $0.03 $ %

First Quarter of 2017 Compared With First Quarter of 2016

Net income for the first quarter of 2017 increased $3.2 million compared to the first quarter of 2016. In the current quarter, net interest income was $1.4 million higher, noninterest income was $593 thousand higher, and noninterest expense was $1.9 million lower. These positive changes were offset by a provision for loan and lease losses that was $200 thousand higher and a provision for income tax that was $551 thousand higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the three months ended March 31, 2017 increased $913 thousand or 9% to $10.8 million. Interest and fees on loans increased $933 thousand due to increased average loan balances. Interest on interest-bearing deposits due from banks increased $39 thousand while interest on securities decreased $59 thousand.

Interest expense for the first quarter of 2017 decreased $517 thousand or 32% to $1.1 million. The net decrease was primarily caused by a $484 thousand decrease in interest on FHLB term debt. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $593 thousand compared to the same period a year previous. Our branch and offsite ATM acquisition completed in the first quarter of 2016, enhanced point of sale and ATM fees by $174 thousand and enhanced service charges on deposit accounts by $55 thousand. During the current quarter we also recognized life insurance death benefit proceeds of $502 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 decreased $1.9 million compared to the same period a year previous. The primary components of the net decrease were:

  • Branch acquisition and balance sheet reconfiguration costs decreased $2.8 million
  • Salaries and related benefits costs increased $433 thousand
  • Sales incentives and commissions increased $196 thousand
  • Occupancy costs increased $259 thousand

Income Tax Provision.

During the three months ended March 31, 2017, the Company recorded a provision for income taxes of $763 thousand (25.31% of pretax income of $3.0 million). Life insurance death benefits of $502 thousand recorded during the current quarter are not subject to income tax and if excluded from pretax income the effective tax rate would have been 30.36%.

During the three months ended March 31, 2016, the Company recorded an income tax benefit of $151 thousand (20.19% of pretax operating losses of $748) The write-off of a $363 thousand deferred tax asset during the quarter resulted in a net expense of $212 thousand.

First Quarter of 2017 Compared With Fourth Quarter of 2016

Net income for the first quarter of 2017 decreased $45 thousand compared to the fourth quarter of 2016. In the current quarter, net interest income was $300 thousand higher and noninterest income was $292 thousand higher. These positive changes were offset by an increase in the provision for loan and lease losses of $200 thousand, noninterest expenses that were $246 thousand higher and a provision for income taxes that were $191 thousand higher.

Net Interest Income

Net interest income increased $300 thousand over the prior quarter.

Interest income for the three months ended March 31, 2017 increased $299 thousand or 12% annualized to $10.8 million compared to the prior quarter. Interest and fees on loans increased $203 thousand due to increased average balances and increased yields. Interest on interest bearing deposits due from banks increased $4 thousand due to increased yields. Interest on investment securities increased $92 thousand due to increased average balances and increased yields.

Interest expense for the three months ended March 31, 2017 decreased $1 thousand or 4% annualized to $1.1 million compared to the prior quarter. Average total deposits for the first quarter of 2017 increased $22.6 million from the fourth quarter of 2016. The growth was in low cost core deposits.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $292 thousand compared to the prior quarter. During the current quarter we recognized income from life insurance death benefit proceeds of $502 thousand. Dividends on Federal Home Loan Bank of San Francisco stock decreased $250 thousand primarily due to a special dividend recorded in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 increased $246 thousand compared to the prior quarter. The primary components of the net increase were:

  • Salaries and related benefits costs increased $269 thousand
  • Employee vacation accrual costs increased $236 thousand
  • Deferred loan origination costs decreased $116 thousand
  • Professional service fees decreased $88 thousand
  • Data processing fees decreased $126 thousand
  • Advertising costs decreased $77 thousand

Income Tax Provision

During the three months ended March 31, 2017, we recorded a provision for income taxes of $763 thousand (25.31% of pretax income) compared with a provision for income taxes of $572 thousand (19.94% of pretax income) for the prior quarter. Our income tax provision is composed of two main components: 1) federal and state income taxes based on our income and 2) amortization of our investments in affordable housing partnerships. The increase in the effective tax rate during the three months ended March 31, 2017 when compared to the prior quarter is due to an adjustment we made to the amortization of our investments in affordable housing partnerships during the prior quarter.

Earnings Per Share

Diluted earnings per share were $0.17 for the three months ended March 31, 2017 compared with diluted loss per share of $0.07 for the same period a year ago, and diluted earnings of $0.17 for the prior period. The number of shares outstanding during these periods has not changed significantly. Changes in earnings per share are the result of changes in net income.

TABLE 7
NET INTEREST MARGIN - UNAUDITED
(amounts in thousands)
For The Three Months Ended
March 31, 2017 March 31, 2016 December 31, 2016
Average Yield / Average Yield / Average Yield /
(Amounts in thousands) Balance Interest(1) Rate Balance Interest(1) Rate Balance Interest(1) Rate
Interest-earning assets:
Net loans (2) $806,793 $9,384 4.72% $720,795 $8,451 4.72% $778,458 $9,181 4.69%
Taxable securities 137,582 789 2.33% 119,917 784 2.63% 124,881 705 2.25%
Tax-exempt securities 73,524 530 2.92% 77,852 594 3.07% 72,288 522 2.87%
Interest-bearing deposits in other banks 57,140 114 0.81% 51,254 75 0.59% 75,760 110 0.58%
Average interest-earning assets 1,075,039 10,817 4.08% 969,818 9,904 4.11% 1,051,387 10,518 3.98%
Cash and due from banks 16,873 12,301 16,953
Premises and equipment, net 16,165 12,384 16,331
Other assets 40,228 39,700 41,363
Average total assets $1,148,305 $1,034,203 $1,126,034
Interest-bearing liabilities:
Interest-bearing demand $420,416 148 0.14% $323,771 122 0.15% $398,749 135 0.13%
Savings deposits 113,647 47 0.17% 96,027 45 0.19% 111,755 45 0.16%
Certificates of deposit 215,202 529 1.00% 221,836 597 1.08% 217,463 543 0.99%
Net term debt 18,598 293 6.39% 91,444 782 3.44% 18,975 298 6.25%
Junior subordinated debentures 10,310 66 2.60% 10,310 54 2.11% 10,310 63 2.43%
Average interest-bearing liabilities 778,173 1,083 0.56% 743,388 1,600 0.87% 757,252 1,084 0.57%
Noninterest-bearing demand 262,881 182,539 261,600
Other liabilities 12,431 16,969 12,856
Shareholders’ equity 94,820 91,307 94,326
Average liabilities and shareholders’ equity $1,148,305 $1,034,203 $1,126,034
Net interest income and net interest margin (4) $9,734 3.67% $8,304 3.44% $9,434 3.57%
Tax equivalent net interest margin (3) 3.78% 3.57% 3.67%
(1) Interest income on loans is net of deferred fees and costs of approximately $197 thousand, $315 thousand, and $139 thousand for the three months ended March 31, 2017, and 2016 and December 31, 2016, respectively.
(2) Net loans includes average nonaccrual loans of $10.9 million, $10.4 million and $10.0 million for the three months ended March 31, 2017 and 2016 and December 31, 2016 respectively.
(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $273 thousand, $306 thousand and $269 thousand for the three months ended March 31, 2017 and 2016 and December 31, 2016, respectively.
(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

The current quarter net interest margin increased ten basis points to 3.67% as compared to the prior quarter due to increased yields on average interest earning assets. Increases in the average balances of the loan and investment portfolios were funded by increased average balances in low cost deposits and decreased average balances in interest-bearing deposits in other banks.

The net interest margin was 3.67% for the current quarter compared to 3.44% for the same period a year ago. The 3 basis point decrease in yield on average earning assets was offset by a 26 basis point decrease in interest expense to fund average earning assets. The increase in interest income compared to the same quarter in the prior year is due to increased volume in the loan and investment portfolios. The decrease in interest expense resulted from our acquisition of low cost core deposits and our ability to restructure our balance sheet.

Average deposit balances increased $22.6 million and $188.0 million compared to the prior quarter and the same period a year ago respectively. The increase in average deposit balances compared to the prior quarter was organic growth in core deposits. The increase in average deposit balances compared to the same period a year ago results from both the March 2016 branch acquisition and strong organic growth in core deposits. Our overall cost of total deposits decreased to 0.29% for the quarter ended March 31, 2017 from 0.37% for the same period a year ago and were unchanged from 0.29% for the prior quarter.

TABLE 8
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLL FORWARD AND IMPAIRED LOAN TOTALS - UNAUDITED
(amounts in thousands)
For The Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2017 2016 2016 2016 2016
Beginning balance$11,544 $11,849 $11,864 $11,495 $11,180
Provision for loan and lease losses 200
Loans charged-off (447) (386) (357) (1,734) (307)
Loan loss recoveries 344 81 342 2,103 622
Ending balance$11,641 $11,544 $11,849 $11,864 $11,495
At March 31, At December 31, At September 30, At June 30, At March 31,
2017 2016 2016 2016 2016
Nonaccrual loans:
Commercial$2,534 $2,749 $1,710 $2,149 $2,563
Real estate - commercial non-owner occupied 1,196 1,196 1,196 1,197 1,197
Real estate - commercial owner occupied 654 784 800 816 1,190
Real estate - residential - ITIN 3,331 3,576 3,392 3,664 3,705
Real estate - residential - 1-4 family mortgage 1,337 1,914 1,798 1,824 1,742
Real estate - residential - equity lines 906 917 942 995 1,270
Consumer and other 39 250 252 266 31
Total nonaccrual loans 9,997 11,386 10,090 10,911 11,698
Accruing troubled debt restructured loans:
Commercial 741 776 726 760 40
Real estate - commercial non-owner occupied 808 808 811 816 821
Real estate - residential - ITIN 4,761 5,033 5,280 5,336 5,502
Real estate - residential - equity lines 450 454 543 548 553
Total accruing troubled debt restructured loans 6,760 7,071 7,360 7,460 6,916
All other accruing impaired loans 337 483 550 488
Total impaired loans$16,757 $18,794 $17,933 $18,921 $19,102
Gross loans outstanding at period end$810,194 $804,211 $779,019 $754,140 $724,243
Allowance for loan and lease losses as a percent of:
Gross loans 1.44 % 1.44 % 1.52 % 1.57 % 1.59 %
Nonaccrual loans 116.44 % 101.39 % 117.43 % 108.73 % 98.26 %
Impaired loans 69.47 % 61.42 % 66.07 % 62.70 % 60.18 %
Nonaccrual loans to gross loans 1.23 % 1.42 % 1.30 % 1.45 % 1.62 %

We realized net loan charge-offs of $103 thousand in the current quarter compared with net loan loss charge-offs of $305 thousand in the prior quarter and net loan recoveries of $315 thousand for the same period a year ago. Charge-offs during the first quarter of 2017 of $447 thousand were primarily associated with purchased consumer loans and residential real estate loans.

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the previous eight consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of March 31, 2017 compared to 1.59% as of March 31, 2016 and 1.44% as of December 31, 2016. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at March 31, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At March 31, 2017, the recorded investment in loans classified as impaired totaled $16.8 million, with a corresponding specific reserve of $1.3 million compared to impaired loans of $19.1 million with a corresponding specific reserve of $1.1 million at March 31, 2016 and impaired loans of $18.8 million, with a corresponding specific reserve of $1.5 million at December 31, 2016. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to two commercial real estate relationships and one residential real estate relationship.

TABLE 9
PERIOD END TROUBLED DEBT RESTRUCTURINGS - UNAUDITED
(amounts in thousands)
At March 31, At December 31, At September 30, At June 30, At March 31,
2017 2016 2016 2016 2016
Nonaccrual $4,570 $4,995 $3,795 $3,785 $4,516
Accruing 6,760 7,071 7,360 7,460 6,916
Total troubled debt restructurings $11,330 $12,066 $11,155 $11,245 $11,432
Percentage of total gross loans 1.40% 1.50% 1.43% 1.49% 1.58%

Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Specific reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These specific reserves are recognized as a specific component to be provided for in the ALLL.

There were no new troubled debt restructurings during the three months ended March 31, 2017. As of March 31, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 110 were performing according to their restructured terms.

TABLE 10
NONPERFORMING ASSETS - UNAUDITED
(amounts in thousands)
At March 31, At December 31, At September 30, At June 30, At March 31,
2017 2016 2016 2016 2016
Total nonaccrual loans $9,997 $11,386 $10,090 $10,911 $11,698
90 days past due and still accruing 10
Total nonperforming loans 9,997 11,386 10,090 10,921 11,698
Other real estate owned 814 759 793 765 1,011
Total nonperforming assets $10,811 $12,145 $10,883 $11,686 $12,709
Nonperforming loans to gross loans 1.23% 1.42% 1.30% 1.45% 1.62%
Nonperforming assets to total assets 0.95% 1.06% 0.98% 1.09% 1.18%

The decrease in nonaccrual loans during the first quarter of 2017 was associated with loans paid off for one commercial real estate relationship, one residential real estate relationship and one consumer relationship.

The March 31, 2017 OREO balance consists of seven properties, of which four are 1-4 family residential real estate properties in the amount of $121 thousand, two are nonfarm nonresidential properties in the amount of $581 thousand and one is an undeveloped commercial property in the amount of $112 thousand.

TABLE 11
UNAUDITED CONSOLIDATED
BALANCE SHEET
(amounts in thousands, except per share data)
At March 31, At March 31, Change At December 31,
2017 2016 $ % 2016
Assets:
Cash and due from banks $18,315 $14,969 $3,346 22 % $16,419
Interest-bearing deposits in other banks 42,744 70,781 (28,037) (40)% 51,988
Total cash and cash equivalents 61,059 85,750 (24,691) (29)% 68,407
Securities available-for-sale, at fair value 181,534 174,251 7,283 4 % 175,174
Securities held-to-maturity, at amortized cost 31,257 35,357 (4,100) (12)% 31,187
Loans, net of deferred fees and costs 811,640 725,228 86,412 12 % 805,535
Allowance for loan and lease losses (11,641) (11,495) (146) 1 % (11,544)
Net loans 799,999 713,733 86,266 12 % 793,991
Premises and equipment, net 15,903 15,494 409 3 % 16,226
Other real estate owned 814 1,011 (197) (19)% 759
Life insurance 21,494 22,642 (1,148) (5)% 23,098
Deferred taxes 9,363 8,389 974 12 % 9,542
Goodwill and core deposit intangible, net 2,196 2,469 (273) (11)% 2,252
Other assets 19,132 17,987 1,145 6 % 20,356
Total assets $1,142,751 $1,077,083 $65,668 6 % $1,140,992
Liabilities and shareholders' equity:
Demand - noninterest bearing $270,412 $212,758 $57,654 27 % $270,398
Demand - interest bearing 407,784 392,325 15,459 4 % 405,569
Savings 112,738 105,828 6,910 7 % 113,309
Certificates of deposit 213,556 226,756 (13,200) (6)% 215,390
Total deposits 1,004,490 937,667 66,823 7 % 1,004,666
Term debt 18,667 19,839 (1,172) (6)% 18,917
Unamortized debt issuance costs (173) (213) 40 (19)% (184)
Net term debt 18,494 19,626 (1,132) (6)% 18,733
Junior subordinated debentures 10,310 10,310 0 % 10,310
Other liabilities 12,994 18,762 (5,768) (31)% 13,177
Total liabilities 1,046,288 986,365 59,923 6 % 1,046,886
Shareholders' equity:
Common stock 24,800 24,325 475 2 % 24,547
Retained earnings 72,066 65,201 6,865 11 % 70,218
Accumulated other comprehensive (loss) income, net of tax (403) 1,192 (1,595) (134)% (659)
Total shareholders' equity 96,463 90,718 5,745 6 % 94,106
Total liabilities and shareholders' equity $1,142,751 $1,077,083 $65,668 6 % $1,140,992
Total interest earning assets $1,068,066 $1,002,492 $65,574 7 % $1,065,228
Shares outstanding 13,517 13,442 13,440
Tangible book value per share $6.97 $6.57 $6.83


TABLE 12
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31,
2017 2016 $ % 2016
Interest income:
Interest and fees on loans $9,384 $8,451 $933 11 % $9,181
Interest on securities 789 784 5 1 % 705
Interest on tax-exempt securities 530 594 (64) (11)% 522
Interest on deposits in other banks 114 75 39 52 % 110
Total interest income 10,817 9,904 913 9 % 10,518
Interest expense:
Interest on demand deposits 148 122 26 21 % 135
Interest on savings deposits 47 45 2 4 % 45
Interest on certificates of deposit 529 597 (68) (11)% 543
Interest on term debt 293 782 (489) (63)% 298
Interest on other borrowings 66 54 12 22 % 63
Total interest expense 1,083 1,600 (517) (32)% 1,084
Net interest income 9,734 8,304 1,430 17 % 9,434
Provision for loan and lease losses 200 200 100 %
Net interest income after provision for loan and lease losses 9,534 8,304 1,230 15 % 9,434
Noninterest income:
Service charges on deposit accounts 127 72 55 76 % 120
ATM and point of sale 266 92 174 189 % 281
Payroll and benefit processing fees 191 160 31 19 % 161
Life insurance 646 156 490 314 % 152
Gain on investment securities, net 66 94 (28) (30)% 52
Federal Home Loan Bank of San Francisco dividends 103 90 13 14 % 353
Other income 143 285 (142) (50)% 131
Total noninterest income 1,542 949 593 62 % 1,250


TABLE 12 - CONTINUED
UNAUDITED
INCOME STATEMENT
(amounts in thousands, except per share data)
For The Three Months Ended
March 31, Change December 31,
2017 2016 $ % 2016
Noninterest expense:
Salaries and related benefits 4,858 4,229 629 15 % 4,237
Occupancy and equipment 1,048 789 259 33 % 1,022
Federal Deposit Insurance Corporation
insurance premium
48 156 (108) (69)% 102
Data processing fees 407 304 103 34 % 533
Professional service fees 393 436 (43) (10)% 481
Telecommunications 211 147 64 44 % 206
Branch acquisition costs 412 (412) (100)%
Loss on cancellation of interest rate swap 2,325 (2,325) (100)%
Other expenses 1,096 1,203 (107) (9)% 1,234
Total noninterest expense 8,061 10,001 (1,940) (19)% 7,815
Income (loss) before provision for income (loss) taxes 3,015 (748) 3,763 (503)% 2,869
Deferred tax asset write-off 363 (363) (100)%
Provision (benefit) for income taxes 763 (151) 914 (605)% 572
Net income (loss) $2,252 $(960) $3,212 (335)% $2,297
Basic earnings (loss) per share $0.17 $(0.07) $0.24 (343)% $0.17
Average basic shares 13,416 13,360 56 % 13,370
Diluted earnings (loss) per share $0.17 $(0.07) $0.24 (343)% $0.17
Average diluted shares 13,521 13,403 118 1 % 13,476


TABLE 13
UNAUDITED CONDENSED CONSOLIDATED
YEAR TO DATE AVERAGE BALANCE SHEETS
(amounts in thousands)
For the Three Months Ended For the Twelve Months Ended
March 31, March 31, December 31, December 31, December 31,
2017 2016 2016 2015 2014
Earning assets:
Loans $806,793 $720,795 $752,938 $699,227 $625,166
Taxable securities 137,582 119,917 120,884 120,897 147,916
Tax exempt securities 73,524 77,852 75,303 77,089 83,973
Interest-bearing deposits in other banks 57,140 51,254 58,668 30,323 56,465
Average earning assets 1,075,039 969,818 1,007,793 927,536 913,520
Cash and due from banks 16,873 12,301 15,831 11,220 11,246
Premises and equipment, net 16,165 12,384 15,078 11,552 12,105
Other assets 40,228 39,700 41,048 42,423 36,936
Average total assets $1,148,305 $1,034,203 $1,079,750 $992,731 $973,807
Liabilities and shareholders' equity:
Demand - noninterest bearing $262,881 $182,539 $226,368 $156,578 $139,792
Demand - interest bearing 420,416 323,771 374,170 283,105 272,383
Savings 113,647 96,027 104,771 92,659 91,108
Certificates of deposit 215,202 221,836 221,074 238,626 259,445
Total deposits 1,012,146 824,173 926,383 770,968 762,728
Term debt 18,598 91,444 37,286 88,874 77,534
Junior subordinated debentures 10,310 10,310 10,310 10,310 15,239
Other liabilities 12,431 16,969 13,217 16,588 15,934
Average total liabilities 1,053,485 942,896 987,196 886,740 871,435
Shareholders' equity 94,820 91,307 92,554 105,991 102,372
Average liabilities & shareholders' equity $1,148,305 $1,034,203 $1,079,750 $992,731 $973,807


TABLE 14
UNAUDITED CONDENSED CONSOLIDATED
QUARTERLY AVERAGE BALANCE SHEETS
(amounts in thousands)
For The Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2017 2016 2016 2016 2016
Earning assets:
Loans $806,793 $778,458 $769,354 $742,684 $720,795
Taxable securities 137,582 124,881 114,578 124,183 119,917
Tax exempt securities 73,524 72,288 73,952 77,168 77,852
Interest-bearing deposits in other banks 57,140 75,760 61,346 46,097 51,254
Average earning assets 1,075,039 1,051,387 1,019,230 990,132 969,818
Cash and due from banks 16,873 16,953 17,018 17,028 12,301
Premises and equipment, net 16,165 16,331 15,941 15,632 12,384
Other assets 40,228 41,363 41,729 41,394 39,700
Average total assets $1,148,305 $1,126,034 $1,093,918 $1,064,186 $1,034,203
Liabilities and shareholders' equity:
Demand - noninterest bearing $262,881 $261,600 $240,418 $220,377 $182,539
Demand - interest bearing 420,416 398,749 390,895 382,811 323,771
Savings 113,647 111,755 107,210 103,990 96,027
Certificates of deposit 215,202 217,463 221,078 223,958 221,836
Total deposits 1,012,146 989,567 959,601 931,136 824,173
Term debt 18,598 18,975 19,610 19,510 91,444
Junior subordinated debentures 10,310 10,310 10,310 10,310 10,310
Other liabilities 12,431 12,856 11,159 11,913 16,969
Average total liabilities 1,053,485 1,031,708 1,000,680 972,869 942,896
Shareholders' equity 94,820 94,326 93,238 91,317 91,307
Average liabilities & shareholders' equity $1,148,305 $1,126,034 $1,093,918 $1,064,186 $1,034,203

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Bank is an FDIC-insured California banking corporation providing community banking and financial services through nine offices located in northern California. The Bank opened on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.

Contact Information: Randall S. Eslick, President and Chief Executive Officer Telephone Direct (530) 722-3900 Samuel D. Jimenez, Executive Vice President and Chief Operating Officer Telephone Direct (530) 722-3952 James A. Sundquist, Executive Vice President and Chief Financial Officer Telephone Direct (530) 722-3908 Andrea Schneck, Vice President and Senior Administrative Officer Telephone Direct (530) 722-3959

Source:Bank of Commerce Holdings